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Nagel-taylor Auto. Supplies v. Aetna Cas.





APPEAL from the Circuit Court of Sangamon County; the Hon. SIMON L. FRIEDMAN, Judge, presiding.


Rehearing denied April 10, 1980.

The principal issue in this case is whether under the evidence a jury could properly find that coverage under a fire insurance policy had not been voided by fraud and false swearing when the insured submitted a verified proof of loss containing an unreasonably high estimate of its business interruption loss.

The suit was brought in the circuit court of Sangamon County by plaintiffs Marvin C. Taylor (Taylor) and Nagel-Taylor Automotive Supplies, Inc., a corporation of which Taylor was the sole owner and principal officer. It was brought against defendant Aetna Casualty & Surety Company of Illinois to recover for a fire loss occurring on May 13, 1976, when a building near Litchfield, owned and operated by plaintiffs as a nightclub, burned. After a trial by jury a verdict was returned for plaintiff allowing $125,000 for damage to the building, $50,000 for damages to its contents and nothing for business interruption loss.

The trial court granted defendant's motion for judgment n.o.v., ruling that defendant had proved as a matter of law that plaintiffs had committed fraud and false swearing in the proof-of-loss statement. Consistently the trial court also allowed defendant's alternative motion for a new trial concluding that, in any event, the jury's rejection of the affirmative defense was contrary to the manifest weight of the evidence. The trial court rejected that portion of defendant's post-trial motion which asked for a new trial on the grounds that the jury's determination that Taylor was not guilty of arson was contrary to the manifest weight of the evidence.

Plaintiffs appeal and defendant has filed notice of cross appeal.

Defendant's affirmative defense of fraud and false swearing was based on a policy provision which stated:

"Concealment, fraud. This entire policy shall be void if, whether before or after a loss, the insured has willfully concealed or misrepresented any material fact or circumstance concerning this insurance or the subject thereof, or the interest of the insured therein, or in case of any fraud or false swearing by the insured relating thereto."

Under the terms of the policy plaintiffs were insured for actual business interruption losses such that they would be reimbursed for the amount by which their profits decreased (or losses increased) during the interruption, "but not exceeding the reduction in gross earning less charges and expenses which do not necessarily continue during the interruption of business * * *." The policy limited payment for this type of loss to the sum of $50,000. A written proof of loss verified by Taylor and timely mailed to defendant stated, "Gross earnings — estimated loss in excess of $100,000 for twelve month period."

The insured property was located on U.S. Route 66 south of Litchfield, a municipality of some 7,000 population. Prior to its purchase and remodeling by plaintiffs, the building had been used as a fast food franchise restaurant. The evidence indicated that the location became undesirable for that purpose when Interstate Route 55, passing Litchfield farther to the west, was opened to traffic. The strongest evidence in support of the affirmative defense of fraud and false swearing were the financial records of the operation. They indicated a deficit exceeding $17,000 to have accumulated in the eight months of the club's operation on total receipts of about $95,000. The cost of goods sold was about $14,000.

Charles T. Baker, a certified public accountant specializing in business interruption claims, testified on behalf of defendant concerning his examination of the club's records. He described the business as being "in very poor financial condition" and stated that liabilities exceeded current assets by 16 to 1, but he did not state the seemingly more important ratio of current liabilities to current assets. He described the records as somewhat unreliable but concluded from his examination of them that no business interruption loss was sustained.

Taylor testified, attempting to justify his optimistic expectations by explaining how entertainment expenses had been drastically cut prior to the fire. He described how previously he had hired expensive entertainers such as those used in expensive Las Vegas nightclubs, but due to small week-night crowds he had recently begun to hire cheaper performers who would appeal to younger crowds.

Taylor presented a profit and loss statement for nine months, the figures for the last month having been lost. When this statement was compared with the records for the eight months as contained in the books it was shown that a profit of $4,500 would have had to have been made in the last month in order for the statement to reconcile with the books. Taylor apparently obtained the results shown on the statement by crediting expense accounts which previously listed as expense, rent theoretically owed but not paid by the corporation to Taylor or vice versa. The business was run and the records kept in such a way that one could not readily tell the respective functions of Taylor and the corporation.

We consider Taylor's estimate to be unreasonably high, but in determining whether the jury could have properly determined that fraud and false swearing did not exist we deem it important that the estimate contained no assertion of an existing fact nor even an opinion concerning the quality or ...

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